Stratasys Reports Third Quarter Financial Results

Revenue of $30.3 Million and GAAP EPS of $0.15 per Share

The company reported revenue of $30.3 million for the third quarter ended September 30, 2010, a 24% increase over the $24.3 million reported for the same period in 2009. System shipments for the third quarter totaled a record 631 units, a 39% increase over the 454 for the same period last year.

The company reported net income of $3.2 million for the third quarter, or $0.15 per share, compared to net income of $1.6 million, or $0.08 per share, for the same period last year.

Non-GAAP net income, which excludes stock-based compensation expense, was $3.4 million, or $0.16 per share, for the third quarter of 2010 compared to $1.8 million, or $0.09 per share, for the same period last year.

Revenue was $83.3 million for the nine-month period ended September 30, 2010, compared to $72.1 million reported for the same period in 2009. System shipments totaled a record 1,923 units for the nine-month period, a 29% increase over the 1,487 units shipped during the same period last year.

The nine-month period in 2010 included a $5.0 million one-time non-cash charge against revenue. The charge against revenue was taken in the first quarter, and represents the fair value of a warrant issued to HP (NYSE: HPQ) for 500,000 shares of Stratasys, Inc. common stock, in connection with the distribution agreement signed in January 2010.

Non-GAAP revenue for the nine-month period, which excludes the warrant charge, was $88.3 million, a 22% increase over the $72.1 million reported for the same period in 2009.

Net income was $5.1 million for the nine-month period, or $0.24 per share, compared to net income of $1.7 million, or $0.09 per share for the same period last year.

Non-GAAP net income, which excludes the warrant charge, certain discrete items and stock-based compensation expense, was $8.9 million, or $0.42 per share, for the nine-month period of 2010 compared to $2.8 million, or $0.14 per share, for the same period last year.

Appropriate reconciliations between GAAP and non-GAAP financial measures are provided in a table at the end of this press release. The table provides itemized detail of the non-GAAP financial measures.

"The third quarter results represent the continuation of an improvement in business conditions within our core markets," said Scott Crump, chairman and chief executive officer of Stratasys. "In addition, the third quarter represents a building of positive momentum within our business when you consider the seasonal weakness that is typical during the period. Reflecting this momentum, our 3D printer and Fortus system revenue grew by 26% and 39%, respectively. We are very pleased with our financial performance.

"Our game-changing collaboration with HP continues to generate positive results. HP orders remained strong during the third quarter and end-customer demand for their new Designjet 3D printer continued to build. The unit sales of Designjet in markets served by HP were more than double the comparable uPrint sales generated within those markets last year, an impressive achievement. Within HP markets, total 3D printer unit volume, which includes the Designjet, expanded by 88% over 2009.

"We believe HP's distribution capabilities can significantly expand the unit system sales of our 3D printers over the long term. The HP brand and marketing muscle have the potential to drive increased awareness and product adoption. Although HP is using its initial launch in Europe to refine a go-to-market strategy and better understand the 3D printing market, it has an deep understanding of the end customer and the market's potential. HP has communicated its desire to move into additional markets, and we are optimistic about expanding the collaboration in the future.

"Our consumable revenue grew by 34% during the third quarter over 2009, the fastest quarterly growth rate within the past three years. The growth is being driven by a rebound in customer usage, as well as the positive impact from our growing installed base of systems. We believe this positive momentum can be sustained, as channel surveys suggest consumable usage is accelerating, and reseller inventories remain relatively tight. In addition, the 39% growth in system units for the third quarter bodes well for future growth in consumable revenue.

"Fortus system sales growth during the third quarter was driven by the ongoing economic recovery, as well as the incremental demand created by emerging direct digital manufacturing, or DDM, applications. The aerospace industry remains a leading innovator in using our technology for DDM. We recently worked with Delta Airlines to provide a DDM solution to address a priority maintenance issue on approximately 200 of their aircraft. This unique application will include several hundred end-use parts made on Fortus systems using our high-temperature ULTEM material.

"We enter the fourth quarter with positive sales momentum in nearly all aspects of our business and a strong pipeline of opportunities. We have leveraged our growth with a distribution strategy that limits the expansion of operating expenses, while continuing to invest aggressively for the future. We believe these investments will yield evolutionary new platforms developed from our proprietary technologies that can further accelerate the adoption of our products.

"We are well positioned competitively and our financial health is the strongest in our company's history. We generated nearly $12 million in cash from operations during the third quarter alone, and now maintain approximately $84 million in cash and investments on our balance sheet. Most importantly, we look forward to expanding our distribution agreement with HP and realizing the full potential of that collaboration. We are excited about our future," Crump concluded.

Stratasys plans to hold a conference call to discuss its third quarter financial results on Tuesday, October 26, 2010 at 8:30 a.m. (ET). The investor conference call will be available via live webcast on the Stratasys Web site at www.stratasys.com under the "Investors" tab; or directly at the following web address: http://phx.corporate-ir.net/playerlink.zhtml?c=61402&s=wm&e=3415299. To participate by telephone, the domestic dial-in number is 866-543-6405, and the international dial-in is 617-213-8897. The access code is 22325390. Investors are advised to dial into the call at least ten minutes prior to the call to register. The webcast will be available for 90 days on the "Investors" page of the Stratasys Web site or by accessing the provided web address.

(Financial tables follow)

Stratasys, Inc., Minneapolis, is a maker of additive manufacturing machines for prototyping and producing plastic parts. The company markets under the brands Dimension 3D Printers and Fortus 3D Production Systems. The company also operates RedEye On Demand, a digital manufacturing service for prototypes and production parts. According to Wohlers Report 2010, Stratasys supplied more additive manufacturing systems in 2009 than any other manufacturer, making it the unit market leader for the eighth consecutive year. Stratasys patented and owns the process known as FDM.® The process creates functional prototypes and manufactured goods directly from any 3D CAD program, using high-performance industrial thermoplastics. The company holds more than 285 granted or pending additive manufacturing patents globally. Stratasys products are used in the aerospace, defense, automotive, medical, business & industrial equipment, education, architecture, and consumer-product industries. Online at: www.Stratasys.com.

All statements herein that are not historical facts or that include such words as "expects," "anticipates," "projects," "estimates," "vision," "could," "potential," "planning", "intends", "desires" or "believes" or similar words constitute forward-looking statements covered by the safe harbor protection of the Private Securities Litigation Reform Act of 1995.Except for the historical information herein, the matters discussed in this news release are forward-looking statements that involve risks and uncertainties.These include statements regarding projected revenue and income in future quarters; the size of the 3D printing market; our objectives for the marketing and sale of our Dimension® and uPrint 3D Printers; our WaveWash support removal system; and our FortusTM 3D Production Systems, particularly for use in direct digital manufacturing (DDM); the demand for our proprietary consumables; the expansion of our paid parts service; and our beliefs with respect to the growth in the demand for our products.Other risks and uncertainties that may affect our business include our ability to penetrate the 3D printing market; the success of our distribution agreement with HP; our ability to achieve the growth rates experienced in preceding quarters; our ability to introduce, produce and market new materials, such as ABSplus and ABS-M30, and the market acceptance of these and other materials; the impact of competitive products and pricing; our timely development of new products and materials and market acceptance of those products and materials; the success of our recent R&D initiative to expand the DDM capabilities of our core FDM technology; and the success of our RedEyeOnDemandTMand other paid parts services.Actual results may differ from those expressed or implied in our forward-looking statements. These statements represent beliefs and expectations only as of the date they were made. We may elect to update forward-looking statements, but we expressly disclaim any obligation to do so, even if our beliefs and expectations change. In addition to the statements described above, such forward-looking statements are subject to the risks and uncertainties described more fully in our reports filed or to be filed with the Securities and Exchange Commission, including our annual reports on Form 10-K and quarterly reports on Form 10-Q.

Financial Tables & Non-GAAP Discussion

The information discussed within this release includes financial results that are in accordance with accounting principles generally accepted in the United States (GAAP).In addition, certain non-GAAP financial measures have been provided that exclude certain charges and expenses.The non-GAAP measures should be read in conjunction with the corresponding GAAP measures and should be considered in addition to, and not as an alternative or substitute for, the measures prepared in accordance with GAAP.The non-GAAP financial measures are provided in an effort to provide information that investors may deem relevant to evaluate results from the company's core business operations and to compare the company's performance with prior periods.The non-GAAP financial measures primarily identify and exclude certain discrete items, such as the warrant charge, restructuring expenses, and expenses associated with stock-based compensation required under ASC 718.The company uses these non-GAAP financial measures for evaluating comparable financial performance against prior periods.

These adjustments reconcile the Company's GAAP results of operations to its non-GAAP results of operations. The Company believes that presentation of results adjusted for the non-GAAP items described below provides meaningful supplemental information to both management and investors.

(3) - Represents the fair value of a warrant issued during the first quarter of 2010 in connection with the Hewlett-Packard Company OEM agreement.

(4) - Represents severance and other related costs associated with the Company's restructuring in the first quarter of 2009.

The Company considers these non-GAAP measures to be indicative of its core operating results and facilitates a comparison of operating results across reporting periods. The Company uses these non-GAAP measures when evaluating its financial results as well as for internal planning and forecasting purposes, however these measures should not be viewed as a substitute for the Company's GAAP results.